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South East: Number of businesses at risk of insolvency rises 35%

24 January 2018
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The proportion of businesses in the South East at a greater than normal risk of insolvency rose by 35% last year, with over 195,000 South East firms categorised as being at higher than usual risk by the beginning of 2018.

The proportion of companies at above-average risk rose from 27.1% in January 2017 to 36.5% in December 2017, according to new research by restructuring and insolvency trade body R3, compiled using Bureau Van Dijk’s Fame database.

The research highlights that of the 11 sectors monitored by R3, construction saw the biggest rise in businesses at above average risk in 2017 with an increase of 32.3%.  Followed closely by manufacturing and professional services (lawyers and accountants) both with an increase of 30.8%.

The technology and IT sector has the highest proportion of companies at heightened risk of insolvency, a figure which rose by 25% between January and December, from 33.9% at the start of the year to 42.5% in the most recent research.

The agriculture and hotel sectors saw the next biggest increase over 2017 with rises of 28% and 26% respectively, but agriculture remains the sector with the fewest firms at higher than normal risk, at 26.4%.  Transport and haulage was the only sector to have seen a fall in the number of companies at above average risk with a decrease of 3.4% between January and December, but the proportion of firms at heightened risk is still relatively high, at 36.5%.

Mike Pavitt, chairman of R3's southern committee and partner and head of the corporate restructuring and insolvency group at solicitors Paris Smith, said: “2017 proved to be a troublesome year across the board for sectors, with some firms clearly struggling to adapt to changing marketplaces. Low interest rates and creditor forbearance have helped keep corporate insolvency volumes relatively low over the last few years, but the economic challenges have started to increase in recent months, particularly the rise of interest rates, and are putting even more pressure on already vulnerable businesses. The effect of the rollout of pension auto-enrolment to smaller businesses will also now start to be reflected in the end of 2017 figures. Brexit negotiations will continue to cause market instability going into 2018 making it problematic for businesses to be able to plan ahead effectively.

"Business owners and directors, particularly in the construction sector given it has become increasing volatile over the period, are advised to continue to monitor their finances carefully, plan for all foreseeable eventualities and keep careful records of their decision-making processes including the evidence upon which those decisions are based. It is vital to remain alert to signs of trouble, which requires good quality data to be available to management, and to be ready to adapt to the changing economic landscape.

“If in doubt, bringing in professional advice from qualified, regulated restructuring specialists early will help to maximise the options for a business, to ensure that value is preserved and enhanced, and to demonstrate conclusively that the managers of the business have been taking such challenges seriously. Bringing in such expertise is not in any sense an admission of defeat; it is nothing other than prudent business planning and it can often reveal opportunities to rebuild and grow a business.”


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